Friday, August 7, 2009

Cash for Clunkers, Day 14 (37)

You know who else is probably benefiting from the program? Small businesses and the auto loan financial sector. You know who is mollified by the program? UAW workers and US auto manufacturers.

Small businesses would join the US everyman in taking advantage of what could effectively work like a free down payment. And most of the individuals or businesses taking advantage of the program will be helping an auto loan sector that has been on the decline for a few quarters.

The auto workers unions made some self sacrificing deals lately, partially at the urging of Democrats I'd bet. By injecting a sales surge into their industry, they are looking at much improved odds of staying employed. That should make their cooperation feel justified. And don't forget that even though many of the top selling vehicles involved in this initiative are not US owned companies, they are still manufactured in US based factories. So those inclined to "buy American" should be somewhat mollified.

The Big Three have been struggling lately. While they are fighting for survival, they have been required to accommodate higher CAFE standards. Their legions of lobbyist could pester Congress like so: "How can you ask us to spend on refitting our manufacturing toward higher fuel efficiencies while we have to come begging for help just to survive?" But with this program, the consumer demand has shifted towards higher fuel efficiencies. And the car industry will always find ways to financially justify capital investment to accommodate consumer demand. Their own survival and government pressures are now pushing them in the same direction.

Similarly, the US consumer should feel better. The environmentalists often ask for noble sacrifice without considering the financial hardships that may result. "Everyone should just drive more efficient cars." This gives the movement an elitist feel since it is mostly the comfortable that can trade money away for improving the world. So Cash for Clunkers removes the initial financial sting. And, lo and behold, we find that a lot of consumers would like to choose the more sustainable option all things being equal.

Many might find that they would have saved an amount equal to the rebate in gas savings over a few years. So the program might also have a practical educational effect. And we will see consumers preferring efficiency without consciously signing on to a political Green movement.

For a much more informed discussion on these notions, take a listen to Amory Lovins' lectures at Stanford in '07. His description of a 'Fee-Bate' program is quite similar to Cash for Clunkers. And his attention to detail is such that he might point out the city street repair departments could be added to the list of beneficiaries of the program; with lighter average vehicle weights come less road damage.